Bharti Infratel Ltd - Research Report

 

Private Client Research

Rating

Buy

Sector

Telecommunication - Service Provider

Company

Bharti Infratel Ltd

Reco Price
Rs. 286.70
Price Target (1 Year)
Rs. 345.00
Upside
20.33%

Date

March 01, 2017
Sensex
28984.49
CNX Nifty
8945.80

Exchange

Code

NSE
INFRATEL
BSE
534816

Consolidation in tower companies and the telecom sector overall will lead to a higher bargaining power for Bharti Infratel (BIL) which would lead to a higher ROCE.

Consolidated tower portfolio of 90255 towers:
Bharti Infratel Ltd. (together with Indus Towers) is India’s biggest tower player. It has a total of 90,255 towers across 22 circles on a consolidated basis, which includes 38997 towers (at the standalone level), and a 42% of Indus’ 1,22,044 towers. Bharti Infratel continues to make its tower portfolio denser in cities, to meet capacity requirements of various telecos. The revision in capex guidance by several telecos and a strong demand in data would lead to higher tenancies for the company.

Increasing bargaining power could lead to a higher ROCE:
Pricing is expected to remain stable post consolidation owing to the oligopolistic structure of the tower industry. However, renewals would be higher, impacted by a disciplined behavior in a three-player industry. Bharti Infratel’s ROCE will improve gradually because of a higher proportion of new site rollouts through loading and monopoles/ground based masts.

Consolidation in the telecom space to be beneficial in the longer term:
There has been a massive consolidation in the telecom space with players like Videocon, Reliance Communications, Sistema Shyam, Aircel, etc, either scaling down their operations or contemplating merging with each other. Bharti Infratel did face losses in tenancies due to such a phenomenon. However, these losses are only temporary. Weeding out inefficient players would lead to higher room availability for the efficient ones. Consolidation trends are also visible in the tower space with ATC India emerging as a competition to Bharti Infratel post the acquisition of Viom Networks.

Indus has renewals coming up in 2018:
Bharti Infratel has an annuity led business with a remaining contract life of an estimated 5.38 years, which ensures a future cash flow of Rs. 46474 crores. The company plans to fix a uniform rate card for all its renewals irrespective of their tenancy being fresh additions or renewals, with a base rental of Rs. 33,000 per month, which would have a yearly escalation of ~2.5% (the master service agreement will be amended). Though renewals in Bharti Infratel (standalone) are small, Indus Towers would have a lot of contracts coming up for renewal in 2018. However, the quantitative impact of the uniform rate card is unclear at this point of time.

Stock Data

CMP (Rs)
288.95
Face value (Rs)
10
52 Week Range (Rs)
413.70 - 281.75
Market cap (Rs Crores)
53518.41
Price To Book Value (x)
3.09
P/E Ratio
20.41
EV/EBIDTA (x)
11.98

One Year indexed Stock Performance

Bharti Infratel LtdSensex
Bharti Infratel Ltd
Return (%)
1m
6m
12m
36m
Absolute
-1.83
-15.94
-22.86
54.02
Sensex
3.00
1.97
21.89
38.37

Shareholders

(in %)
31-Dec
Promoter
71.96
Public
27.99
Others
0.05
Total
100

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Industry

The Indian telecom industry has witnessed significant growth in subscriber base over the last decade, with increasing network coverage and a competition-induced decline in tariffs playing facilitators. The growth story and the potential have also served to attract newer players in the industry, with the result that the intensity of competition has kept increasing, forcing the telecom operators to look for cost-cutting measures. One such measure has been the hive-off of telecom tower related operations into separate companies to allow for greater operating efficiencies and tower sharing. The attractiveness of the telecom tower industry, given the aggressive network rollout plans of the telecos, has led to the entry of several companies in the fray.

There are close to 4,00,000 telecom towers in India at present and are estimated to increase at a CAGR of 3% over next 4-5 years. The decline in growth of voice usage along with industry developments and regulations in India have raised concerns about the growth of independent tower businesses, thereby affecting their cash flows and debt repayments. However, exploding data traffic is leading to in-building solutions and smaller cell sites, and is expected to drive growth of the Indian tower industry in the future.

Profile

Bharti Infratel Ltd., as one of the pioneers of Shared Tower Telecom Infrastructure services, Infratel has helped Telecom operators maximize their reach in a short period of time by providing them compelling capex saving opportunities, as a result, making them focus their investment in reaching out to more and more communities across the country, and contributing in offering highly affordable telecom services which helps integrate more subscribers into the mainstream, and connect them to the rest of the world. BIL has pan india presence across all 22 telecommunication circles. Indus tower, JV between BIL, Vodafone & Idea (Aditya Birla telecom) has a tower network of 1,22,044 towers.

Profit & Loss Statement:- (Consolidated)
(Rs Crores)
Particulars
Mar 14
Mar 15
Mar 16
Mar 17E
Mar 18E
Income:-
  • Net Sales
  • Growth (%)
  • Total Expenditure
  • EBITDA
  • % Margin
  • Other Income
  • Operating Profit
  • Interest
  • PBDT
  • Depreciation
  • Profit Before Taxation & Exceptional Items
  • Exceptional Income / Expenses
  • Tax
  • Profit After Tax
  • Share of Associates
  • Consolidated Net Profit
  • Adjusted EPS
  • 10826.70
  • -
  • 6429.70
  • 4397.00
  • 40.61
  • 451.80
  • 4848.80
  • 399.70
  • 4449.10
  • 2125.90
  • 2323.20
  • 0.00
  • 805.30
  • 1517.90
  • 0.00
  • 1517.90
  • 8.04
  • 11668.30
  • 7.77
  • 6669.70
  • 4998.60
  • 42.84
  • 527.80
  • 5526.40
  • 290.20
  • 5236.20
  • 2184.70
  • 3051.50
  • 0.00
  • 1059.10
  • 1992.40
  • 0.00
  • 1992.40
  • 10.54
  • 12308.40
  • 5.49
  • 6942.40
  • 5366.00
  • 43.60
  • 743.80
  • 6109.80
  • 219.80
  • 5890.00
  • 2269.30
  • 3620.70
  • 0.00
  • 1238.70
  • 2382.00
  • 0.00
  • 2382.00
  • 12.56
  • 13416.16
  • 9.00
  • 7513.05
  • 5903.11
  • 44.00
  • 900.00
  • 6803.11
  • 200.00
  • 6603.11
  • 2382.77
  • 4220.34
  • 0.00
  • 1456.02
  • 2764.33
  • 0.00
  • 2764.33
  • 14.58
  • 14757.77
  • 10.00
  • 8264.35
  • 6493.42
  • 44.00
  • 900.00
  • 7393.42
  • 180.00
  • 7213.42
  • 2501.90
  • 4711.52
  • 0.00
  • 1625.47
  • 3086.04
  • 0.00
  • 3086.04
  • 16.27
Source: Stockaxis Research, Company Data

Valuation

BIL is trading at 9x its FY2018 cash profit. Post-consolidation, the entry barriers in the tower business is expected to increase significantly. Hence, with positive backdrop on whole industry, valuation gap between global peers and BIL would start reducing.

 

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